Staples, Inc. (SPLS): Insider Buying – CEO Pulls a 180

Last week's NASDAQ meltdown may have spooked boardroom investors as the number of companies with records of insider buying dipped below 100.  iStock doesn't know if dwindling buying is a leading or lagging indicator. Either way, sentiment for both is weak at the moment.

But never fear, iStock has an insider buying idea here.

One of our favorite angles is when an insider has a change of heart. Staples, Inc. (NASDAQ:SPLS) Chairman of The Board, Chief Executive Officer and Chairman of Executive. Committee, Ronald L. Sargent indirectly bought (trust, spouse account…) 8,500 shares at $11.82 per share for a total investment of $100,470.

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Sargent is the king fish at Staples, which operates office products superstores. It operates in three segments: North American Stores & Online, North American Commercial, and International Operations. As of March 7, 2014, it operated approximately 2,200 stores worldwide. The company also operated 116 distribution and fulfillment centers in 30 states in the United States; 7 provinces in Canada; and in Austria, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, the United Kingdom, China, Argentina, Brazil, and Australia.

The April 3rd buy stands out like SHAQ in a Wizard of Oz Munchkin reunion. For the past two years, the CEO did nothing but sell, acquire free stock, and exercise options. To see him purchasing stock near its 52-week low of $11.04 gives investors a sense of what Sargent might believe is Staples intrinsic value i.e. the sum of the parts.

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Maybe, business isn't going to slip as much as analysts expect in 2014. So far, at least, search volume intensity for the keyword "Staples" is flat for the first three months of 2014 versus the same time last year. Additionally, both Alexa.com and quantcast.com show a rise in web visitors to Staples.com year-over-year to start 2014, as well.

Meanwhile, analysts believe sales will drop 2.7% to $22.49 billion this year from $23.11 billion last years. Earnings per share (EPS) are also forecasted to decline to $1.08 from $1.16 (6.9% lower).

While actual revenue and profit results might prove to be slimly better than the current consensus outlooks, current valuations are below the half-decade averages.

During the last five-years, SPLS traded with an average price-to-sales (P/S) ratio of 0.50, and the typical price-to-earnings (P/E) ratio was 16.27. Today, shares of the office supply retailer trade at 0.35 times sales and 12.96 times earnings.

Based on Wall Street's 2014 consensus sales and EPS estimates, if SPLS trades at the average P/S and P/E ratios sometime during the year ahead, then the stock would price out at $17.28 and $17.57, respectively.

Overall: Staples, Inc. (NASDAQ:SPLS) tends to hug Wall Street's estimates for sales and earnings. If SVI and web traffic trends are somewhat reliable indicators, then SPLS's top and bottom lines might be a little bigger than expected, which should help drive Staples' P/S and P/S ratios a little closer to normal.